India’s Procurement Policy Remains A Challenge

Boeing has expressed in no uncertain terms to AIN the pain of having to honor offsets in India and the challenge of managing a constantly shifting policy landscape. The growing Indian defense budget ($44 billion by 2016) may be attractive but it would seem that the trials and tribulations being faced by initial winners such as Boeing could be a significant downside for the foreseeable future.

“The biggest challenge is the defense procurement policy [DPP],” Christopher Chadwick, president of Boeing Military Aircraft, told AIN. This is not just a Boeing challenge but an industry issue…The intentions of the Indian government that the Indian industry should grow, we support,…but the speed [of acquisition] cannot absorb the offsets.”

Defense procurements in India call for an offset clause of 30 to 50 percent. The policy, which undergoes a change every year, is not retroactive to those awarded earlier. “My concern is we have different programs under different procurement policies. This is becoming difficult to manage,” said business development vice president Jeffery Kohler.

The concern has become imminent as the first P-8I multi-mission maritime patrol aircraft will be delivered to India at the end of the first quarter of 2013. India will take delivery of its first C-17s in mid-2013. Pratt & Whitney has already delivered the first four F117 engines for the Indian air force to power its fleet of C-17 aircraft. In 2011, India’s Ministry of Defense signed a letter of offer and acceptance with the U.S. government to acquire 10 C-17s.

Boeing is now awaiting the final letter for 22 AH-64D Apache attack helicopter and weapons. Also awaited is a decision on 15 heavy-lift CH-47F Chinook helicopters.

The U.S. airframer is also planning to stop production of the C-17 by around 2015 as the commercial side looks to get more orders. India, too, might look at additional options. Chadwick told AIN it is unlikely that orders for additional aircraft will be made “until we deliver the C-17 and they get a sense of the capabilities. There is [however] a concern regarding the timing.”